ECONOMICS
Submitted To Submitted By
1
ACKNOWLEDGEMENT
I would like to express my special thanks of gratitude to my teacher Dr. Mitali Tiwari
who gave me the golden opportunity to do this wonderful project of Economics on the
topic “INCOME INEQUALITY IN INDIA”, Who also helped me in completing my project and
has rendered endless support, kind and understanding spirit during my project completion. I came
to know about so many new things I am really thankful to her. The completion of this project could
not have been possible without the participation and assistance of various people thus, I would
also like to thank my parents and friends who helped me a lot in finalizing this project within the
I would also like to thank the Great Almighty, source of supreme knowledge for countless love
rendered on me.
ANIKET SACHAN
ROLLNO-28
2
Table of Contents
Table of Contents 3
CHAPTER 1: INTRODUCTION 4
CHAPTER 2: CAUSES OF INCOME INEQUALITY 7
UNEMPLOYMENT .................................................................................................................. 7
INFLATION .............................................................................................................................. 7
PAYMENT OF BONUS:............................................................................................. 13
CHAPTER 5: CONCLUSION 16
BIBLIOGRPAHY 17
3
CHAPTER 1: INTRODUCTION
Income inequality is the gap between rich and poor i.e. is the differences in the distribution of
economic assets (wealth) and income within or between populations or individuals. It is the state
of an economy in which the shares of total income earned by the rich and poor are highly unequal.
The richest 1% of Indians own 58.4% of wealth. The richest 10 % of the Indians own 80.7 % of
the wealth. This trend is going in the upward direction every year, which means the rich are getting
richer and the poor are getting poorer.[2]Inequality worsened since the establishment of income tax
in 1922.
According to Global Wealth Report 2016 compiled by Credit Suisse Research Institute, the gap
between the world’s haves and have-nots does not appear to be getting any narrower and a mere
0.7% of the global population owns nearly half the world’s wealth. The report identified Russia as
the world’s most unequal country with a huge 74.5% of the nation’s wealth controlled by the richest
1% of people. In India and Thailand the top 1% own 58.4% and 58% of the wealth, while the
figure was 47.9 for Brazil and 43.8 for China, the ‘Independent’ reported.1
The contrast between China and India may also come as a surprise, given their similarities in terms
of huge populations and rapid growth. Their representation in the global bottom half is very
1
India second most unequal country in the world: Wealth Report.
(2018). https://www.hindustantimes.com/. Retrieved 10 March 2018, from
https://www.hindustantimes.com/india-news/india-second-unequal-country-in-the-world-wealth-
report/story-MGIa7MbWAdzhKFvwhtiIeI.html
4
different, and the discrepancy is even greater in the bottom quintile which covers 31% of Indians
but only 7% of Chinese, the report said. Personal wealth in India is dominated by property and
other real assets, which make up 86% of estimated household assets, it said.
The report said that while wealth has been rising in India, not everyone has shared in this growth.
“There is still considerable wealth poverty, reflected in the fact that 96% of the adult population
has wealth below US $10,000, whereas this percentage is only 68% in China,”2
Recently there was a recent index in which India rank was also not satisfactory. India has been
ranked 132nd among 152 nations in a new index tracking commitment to reducing income
inequality.3 The index prepared by Development Finance International, Inc. and Oxfam ranks
nations on the basis of their welfare spending, the progressive nature of their tax system and
While the period 1951 to 1980 saw the poor narrowing the income gap with the well-to-do, the trend
has reversed over the period 1980-2014, they say. The Gini Coefficient for the country is estimated to
Gini Coefficient is a popular statistical measure to gauge the rich-poor income or wealth divide. It
2
India second most unequal country in the world: Wealth Report. (2018). https://www.hindustantimes.com/ .
3
Prasad, G. (2018). India ranks 132 in commitment to narrow income inequality. http://www.livemint.com/ .
Retrieved 10 March 2018
5
value varies anywhere from zero to 1; zero indicating perfect equality and one indicating the
perfect inequality. Gini Coefficients can be used to compare income distribution of a country over
time as well. An increasing trend indicates that income inequality is rising independent of absolute
incomes.
Chart 14: India not only has one of the highest levels of inequality in the region, but it also
shows very large increases in inequality since 1990. Its net Gini index of inequality (based on
income net of taxes and transfers) rose from 45.18 in 1990 to 51.36 in 2013. Only two countries
in the Asia-Pacific region—Papua New Guinea and China—are more unequal. Indeed, the net
Gini coefficient in India is much higher than the average of 43.69 for Latin America
4
Chakravarty, M. (2018). Just how high is income inequality in India?. Retrieved 11 March 2018, from
http://www.livemint.com/Opinion/JKZYjYjixRipa95tw2AOXK/Just-how-high-is-income-inequality-in-India.html
6
CHAPTER 2: CAUSES OF INCOME INEQUALITY
UNEMPLOYMENT
Increasing unemployment, underemployment and disguised unemployment are responsible for
inequalities of income. The main reason for low level of income of the majority of Indian people
is unemployment and underemployment and the consequent low productivity of labour. Low
labour productivity implies low rate of economic growth which is the main cause of poverty and
inequality of the large masses of people. In fact, inequality, poverty and unemployment are inter-
related. Since sufficient employment could not be created through the process of planned
economic development, it was not possible to increase the income levels of most people in India
People at the bottom could raise their economic status and to an extent reduce the distance
separating them from those at the top, if they could get work. In other words, if they did not possess
adequate earning assets, they could at least earn from their labour. But there too the situation was
not favourable. For long the increase in employment opportunities remained less than the rise in
INFLATION
Another cause of inequality is inflation. During inflation, few profit earners gain and most wage
earners lose. This is exactly what has happened in India. Since wages have lagged behind prices,
profits have increased. This has created more and more inequality. Moreover, during inflation,
money income increases no doubt but real income falls. And this leads to a fall in the standard of
7
No doubt, inequality has increased due to rise in prices. During inflation workers in the organised
sector get higher wages which partly offset the effect of price rise. But wages and salaries of
workers in unorganised sectors (such as agriculture and small-scale and cottage industries) do not
increase. So their real income (purchase income) falls. This is how inequality in the distribution
of income increases between the two major sectors of the economy — organised and unorganised.5
own a part of the assets they operate, organise finances through banks, cooperatives, etc, and
acquire/hire productive assets.These inequalities enable the few to get incomes in the form of rent,
interest and profit. As these assets accumulate and pass on from generation to generation, the
As for rural areas, the ownership pattern of the most important asset, namely, land, is highly
unequal. The marginal households (with holdings less than 1 hectare), which account for as many
as 72 per cent of the rural households own very little about 17 per cent of the land.At the other
end, there are those with large holdings (of more than 10 hectares) who are about 1 per cent of the
rural households. But they have under their ownership as much as 14 per cent of the area.6
5
Inequality of Income and Wealth in India: Causes and Measures. (2018). Economics Discussion. Retrieved 10
March 2018, from http://www.economicsdiscussion.net/india/inequality-of-income/inequality-of-income-and-
wealth-in-india-causes-and-measures/12840
6
What are the Important Causes of Income Inequalities in India?. (2018). Your Article Library. Retrieved 10 March
2018, from http://www.yourarticlelibrary.com/economics/what-are-the-important-causes-of-income-inequalities-in-
india/3041
8
Private ownership of property and inheritance laws is mainly responsible for highly unequal
distribution of assets.
TAX EVASION
In India, the personal income tax rates are very high. High tax rates encourage evasion and
avoidance and give birth to a parallel economy. This is exactly what has happened in India
during the plan period. Here, the unofficial economy is as strong as (if not stronger than) the
official economy. High tax rates are responsible for inequality in the distribution of income and
wealth. This is due to undue concentration of incomes in a few hands caused by large- scale tax
evasion. On the other hand, the indirect taxes give maximum revenue to the government. But
they are regressive in nature. Such taxes have also created more and more inequality over the
No doubt, India’s new agricultural strategy led to the Green Revolution and raised agricultural
productivity. But the benefits of higher productivity were enjoyed mainly by the rich farmers and
landowners. At the same time, the economic conditions of landless workers and marginal
farmers deteriorated over the years. Most farmers in India could not enjoy the-benefits of higher
agricultural productivity. As a result, inequality in the distribution of income in the rural areas
has increased.
9
GROWTH FACTOR
As development proceeds, the earnings of different groups rise differently. The incomes of the
upper-income and middle-income groups rise more rapidly than those of the poor. This happens
The explanation lies in the shift of population from agriculture which is a slow growing sector to
the modern large industrial sector which grows more rapidly. Again, there is the capital-intensive
nature of the development of the modern sector. Since this absorbs less labour, wages form a
smaller proportion of total income. Hence, the income spread is not wide enough. On the other
hand, the capital-intensive type of growth leads to concentration of income in those few hands
country’s total wealth — higher than the global figure of about 50 per cent, a new study showed
on Monday.
The study, released by rights group Oxfam ahead of the World Economic Forum (WEF) annual
meeting here attended by rich and powerful from across the world, showed that just 57 billionaires
in India now have same wealth (USD 216 billion) as that of the bottom 70 per cent population of
the country. Globally, just 8 billionaires have the same amount of wealth as the poorest 50 per cent
10
of the world population. According to latest survey released by the international rights group
Oxfam, richest 1% in India cornered 73% of the wealth generated in country in 2017.7
The survey shows worrying picture of rising income inequality. It was released as part of report
titled ‘Reward Work, Not Wealth’, revealing how global economy enables wealthy elite to
accumulate vast wealth even as hundreds of millions of people struggle to survive on poverty pay.
Nisha Agrawal, CEO of Oxfam India said: “It is alarming that the benefits of economic growth in
India continue to concentrate in fewer hands. The billionaire boom is not a sign of a thriving
economy but a symptom of a failing economic system. Those working hard, growing food for the
country, building infrastructure, working in factories are struggling to fund their child’s education,
buy medicines for family members and manage two meals a day. The growing divide undermines
Women workers often find themselves at the bottom of the heap. Across the world, women
consistently earn less than men and are concentrated in the lowest paid and least secure forms of
work. By comparison, 9 out of 10 billionaires are men. In India, there are only four women
Oxfam calculated that if India were to reduce inequality by a third, more than 170 million people
would no longer be poor. Government spending on health, education and social protection is
woefully low. The tax structure looks reasonably progressive on paper, but in practice, much of
7
Richest 1 percent bagged 73 percent of wealth created last year - poorest half of India got 1 percent, says Oxfam
India. (2018). Oxfam India. Retrieved 11 March 2018, from https://www.oxfamindia.org/pressrelease/2093
8
Richest 1 percent bagged 73 percent of wealth created last year - poorest half of India got 1 percent, says Oxfam
India. (2018). Oxfam India. Retrieved 11 March 2018, from https://www.oxfamindia.org/pressrelease/2093
11
the progressive tax is not collected. On labour rights and respect for women in the workplace,
income inequality. According to it inclusive growth should be promoted by ensuring that the
income of the bottom 40% of the population grows faster than of the top 10% so that the gap
between the two begins to close. This can be done by encouraging labour-intensive sectors that
will create more jobs, investing in agriculture and effectively implementing the social protection
Seal the leaking wealth bucket by taking stringent measures against tax evasion and avoidance;
taxing the super-rich by re-introducing inheritance tax, increasing wealth tax, reducing and
eventually do away with corporate tax breaks; creating a more equal opportunity country by
Bring data transparency, produce and make available high quality data on income and wealth.
Regularly monitor the measures the government takes to tackle the issue of rising inequality.
Progressive taxation: Where corporations and the richest individuals pay more to the state in
order to redistribute resources across society, is key. Tax can play a progressive role, or a
9
Richest 1 percent bagged 73 percent of wealth created last year - poorest half of India got 1 percent, says Oxfam
India. (2018). Oxfam India. Retrieved 11 March 2018, from https://www.oxfamindia.org/pressrelease/2093
12
Payment of Bonus: Firstly, the payment of bonus (called annual payment) has been made
Ceiling on Land Holding: Secondly, a ceiling on landholdings has been imposed in the rural
areas. Each household (or family) is allowed to hold a certain amount of land. Any surplus above
this is taken over by the Government and is redistributed among the landless workers and marginal
farmers. Moreover, in 1976 a ceiling on urban property has also been imposed.
Social Spending: On public services such as education, health and social protection, is also
important. Oxfam has for many years campaigned for free, universal public services.
Two key indicators are: how much has a government committed to spend on education, health and
social protection? And how progressive are the spending levels? The following chart shows the
money India has spent on public services over the past eight years; the horizontal lines represent
10
Inequality in India: what's the real story?. (2018). World Economic Forum. Retrieved 11 March 2018, from
https://www.weforum.org/agenda/2016/10/inequality-in-india-oxfam-explainer/
13
Image: Economic Survey 2014-15, Statistical Appendix, Government of India
According to a forthcoming Oxfam report (to be published in 2017), India performs relatively
poorly on both counts. Its total tax effort, currently at 16.7% of GDP, is low (about 53% of its
potential) and the tax structure is not very progressive since direct taxes account for only a third
of total taxes.
When it comes to the second indicator (levels and progressivity of social-sector spending), India
compares less well. Only 3% of GDP goes towards education and only 1.1% towards health.
manufacturing like; Construction, Textile, Clothing, Footwear etc. is the single most reason of
rising inequalities. The Labour-intensive manufacturing has the potential to absorb millions of
14
The proportion of the labour force in agriculture has come down, but the workers who have left
farms have not got jobs in modern factories or offices. Most are stuck in tiny informal enterprises
with abysmal productivity levels. If India could somehow reverse this trend and promote labour-
Skill Development: The development of advanced skills among the youth is a prerequisite if India
wants to make use of its demographic dividend. The skilling of youth by increasing investment in
education is the only way we can reduce inequality. India needs to become a Skill-led economy.
15
CHAPTER 5: CONCLUSION
The government should follow the following measure to minimize income inequality. Although it
cannot be eliminated in one go but steps could be ensured to minimize it and make it tend to
minimal. Policies that can affect the level of economic inequality include redistribution between
rich and poor, making it easier for people to climb the ladder of opportunity; and estate taxes,
which are taxes on inheritances. Pushing too aggressively for economic equality can run the risk
of decreasing economic incentives. However, a moderate push for economic equality can increase
economic output, both through methods like improved education and by building a base of political
The dream of ending poverty: Oxfam has calculated that if India stops inequality from rising
further, it could end extreme poverty for 90 million people by 2019. If it goes further and reduces
India – along with all the other countries in the world – has committed to attaining the Sustainable
Development Goals by 2030, and to ending extreme poverty by that year. But unless we make an
effort to first contain and then reduce the rising levels of extreme inequality, the dream of ending
extreme poverty for the 300 million Indians – a quarter of the population – who live below an
16
BIBLIOGRPAHY
Inequality in India: what's the real story?. (2018). World Economic Forum. Retrieved 11
March 2018, from https://www.weforum.org/agenda/2016/10/inequality-in-india-oxfam-
explainer/
Inequality of Income and Wealth in India: Causes and Measures. (2018). Economics
Discussion. Retrieved 10 March 2018, from
http://www.economicsdiscussion.net/india/inequality-of-income/inequality-of-income-
and-wealth-in-india-causes-and-measures/12840
What are the Important Causes of Income Inequalities in India?. (2018). Your Article
Library. Retrieved 10 March 2018, from
http://www.yourarticlelibrary.com/economics/what-are-the-important-causes-of-income-
inequalities-in-india/3041
India second most unequal country in the world: Wealth Report. (2018). Retrieved 10
March 2018, from https://www.hindustantimes.com/india-news/india-second-unequal-
country-in-the-world-wealth-report/story-MGIa7MbWAdzhKFvwhtiIeI.html
Richest 1 percent bagged 73 percent of wealth created last year - poorest half of India
got 1 percent, says Oxfam India. (2018). Oxfam India. Retrieved 11 March 2018, from
https://www.oxfamindia.org/pressrelease/2093
17